Journal of Regulatory Economics

, Volume 54, Issue 1, pp 41–52 | Cite as

Efficient indirect regulation under Protection for Sale

  • Doron NisaniEmail author
Original Article


Regulatory intervention is necessary to overcome market failures. However, this kind of intervention may also create Protection for Sale conditions in the market—which might, in turn, lead to an inefficient resource allocation. This paper examines the effect of an indirect intervention on regulated market welfare under Optimal Regulation and Protection for Sale conditions. Although under Optimal Regulation conditions there is zero welfare-loss as it derives from Differential Price Policy (DPP), it seems that under substantial Protection for Sale conditions this price policy increases the welfare-loss, and therefore a Uniform Price Policy (UPP) might achieve a smaller welfare-loss—due to the “free-riding” effect. Furthermore, this paper suggests that in between these two price policies lays a third option, a Combined Price Policy, that can balance between the accurate resource allocation (DPP) and the political pressure reduction (UPP) in order to reduce the welfare-loss and to increase the market efficiency.


Protection for Sale Free-riding Menu-auction Regulatory policy 

JEL Classification

D61 D72 H42 L78 



The author thanks Prof. Israel Finkelshtain and Dr. Iddo Kan for their guidance. Moreover, the author thanks the anonymous referees for their helpful comments. The research in this paper was partially sponsored by a Graduate Scholarship from the Hebrew University of Jerusalem.


  1. Arrow, K. J. (1951). An extension of the basic theorems of classical welfare economics. In P. Newman (Ed.), Reading in mathematical economics. Baltimore: Johns Hopkins Press.Google Scholar
  2. Bernheim, B. D., & Whinston, M. D. (1986). Menu auctions, resource allocation, and economic influence. Quarterly Journal of Economics, 101(1), 1–31.CrossRefGoogle Scholar
  3. Bombardini, M. (2008). Firm heterogeneity and lobby participation. Journal of International Economics, 75(2), 329–348.CrossRefGoogle Scholar
  4. Buchanan, J. M., & Tullock, G. (1975). Polluters’ profits and political response direct controls versus taxes. American Economics Review, 65(1), 139–147.Google Scholar
  5. Debreu, G. (1951). The coefficient of resource utilization. Econometrica, 19(3), 273–393.CrossRefGoogle Scholar
  6. Finkelshtain, I., & Kislev, Y. (1997). Prices vs. quantities: the political perspective. Journal of Political Economy, 105(1), 83–100.CrossRefGoogle Scholar
  7. Furusawa, T., & Konishi, H. (2011). Contributing or free-riding? voluntary participation in pubic good economy. Theoretical Economics, 6(2), 219–256.CrossRefGoogle Scholar
  8. Gawande, K., & Hoekman, B. (2006). Lobbying and agricultural trade policy in the United States. International Organization, 60(3), 527–561.CrossRefGoogle Scholar
  9. Gawande, K., Krishna, P., & Olarreaga, M. (2012). Lobbying competition over trade policy. International Economic Review, 53(1), 115–132.CrossRefGoogle Scholar
  10. Gawande, K., & Magee, C. (2012). Free-riding on Protection for Sale. International Studies Quarterly, 56(4), 735–747.CrossRefGoogle Scholar
  11. Grossman, G. M., & Helpman, E. (1994). Protection for Sale. American Economic Review, 84(4), 833–850.Google Scholar
  12. Panagariya, A., & Rodrik, D. (1991). Political-economy arguments for a uniform tariff. International Economic Review, 34(3), 685–703.CrossRefGoogle Scholar
  13. Zusman, P. (1976). The incorporation and measurement of social power in economic models. International Economic Review, 17(2), 447–462.CrossRefGoogle Scholar
  14. Zusman, P., & Amiad, A. (1977). A quantitative investigation of a political economy: The Israeli dairy program. American Journal of Agricultural Economics, 59(1), 88–98.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of Environmental Economics and ManagementHebrew University of JerusalemRehovotIsrael

Personalised recommendations